Battle Over Future of IDB Development Goes to Court

Conditional agreement reached for more funding from Elsztain.

One of the most important battles waged on the Israeli capital-market scene in recent years is coming to Tel Aviv District Court today.

In one corner are representatives of bondholders of IDB Development, the wholly-owned subsidiary of controlling shareholder Nochi Dankner’s IDB Holding. They will argue that IDB Development is insolvent and should be forced into a debt rescheduling arrangement, converting NIS 3.2 billion in debt to equity shares in the company. IDB Development currently owes its bondholders and banks about NIS 5.8 billion.

On the other side will be other creditors of IDB Development, company representatives themselves, and IDB Holding representatives and its bondholders, who will argue that IDB Development is indeed solvent and facing an effort at forced takeover.

IDB Holding, the parent company, filed court papers Thursday saying that the bondholder representatives include investment funds that are seeking to break up Israel’s corporate conglomerate simply based on the opinion of an expert whom they have engaged.

The company is asking for the court to reject the request by the investment firms − Psagot, York Capital and Phoenix Holdings − and added that IDB Development is meeting its payment obligations and has liquid assets to meet future payments for a considerable period. IDB Holding says it is in negotiations with holders of NIS 2 billion of its bonds and claims it can meet its obligations.

Dankner controls his IDB group, which includes such familiar fixtures on the Israeli scene as Super-Sol supermarkets and Cellcom ‏(the cellular service firm‏), through the privately held company Ganden Holdings.

IDB group companies have been reeling recently due to huge debt obligations, which were made more problematic after Bank Leumi backed out of a proposed debt rescheduling agreement earlier this month that would have seen about NIS 150 million of Ganden’s debt forgiven. The retreat on the bank’s part followed a public outcry after the deal was reported in TheMarker.

Dankner has also been counting on an additional injection of funds from Argentine-Jewish businessman Eduardo Elsztain, who has already invested NIS 100 million in Ganden. On Friday Dankner returned from Argentina, where he met on the matter with Elsztain, who has now also arrived in Israel. The two have agreed that if IDB Holding comes to an agreement with its bondholders and bank lenders on its approximately NIS 2 billion debt, and if Ganden comes to an agreement with its own bank lenders, Elsztain will indeed invest $75 million in Dankner’s business empire.
Of that sum, $57 million ‏(NIS 205 million‏) would go to IDB Holding and $18 million ‏(NIS 65 million‏) to Ganden.

The new injection of funds, even at $75 million ‏(which is about NIS 270 million‏), is dwarfed by the IDB group’s debt, which is estimated at about NIS 9 billion, split between privately-held Tomahawk Investments, Ganden, IDB Holding and IDB Development.

IDB Holding is currently trading at a market value of about NIS 412 million. Apart from NIS 190 million in cash on hand, its only significant asset is its ownership of IDB Development, which is burdened with NIS 6 billion of its own debt. It is the battle by that company’s bondholders that is being waged in court today.

It is not clear what percentage ownership stake Elsztain would take in IDB Holding, which is currently being held 47.2% by Ganden, 11.8% by the Livnat family, nearly 10% by Manor Holdings, and about 6.7% by Nochi Dankner personally.

Even if Dankner comes to an agreement with IDB Holding’s bondholders, it is difficult to see how the company would service about NIS 1.56 billion spread over 13 years. And in light of the controlling shareholders’ other obligations, it is difficult to see how they would provide the company funds − beginning in another two years for the next five years at a clip of NIS 45 million per year.

Elsztain and his representatives are this week due to meet with bondholder representatives of IDB Holding to advance a debt agreement, but tougher meetings are expected between Elsztain and Ganden and Tomahawk’s bank lenders − Leumi, Mizrahi-Tefahot, Israel Discount Bank and Bank Hapoalim.

For its part, however, Leumi said it is not in debt negotiations with Ganden.
 

Nir Keidar